CHAIR—Welcome, Dr Bell.

Talk
Dr Bell—Thank you for giving me the opportunity to come and talk about what we do. I am a co-founder and currently a research scientist at Microbiogen. As background, I am a geologist as well as a molecular biologist geneticist and I have a biochemistry PhD. The company I work for, Microbiogen, is focused on developing the technology for lignocellulose to ethanol. That is our sole focus at the moment and that is where we are trying to progress. When you build a company like ours you have got to work out what can make it a viable business model. For us to start this company, one of the things that we needed to do was research as much as possible all of the issues that we are talking about here with liquid fuels.

Australian oil production, according to Australia’s own reports on it, is in decline, and that is despite $750 million a year being spent on exploration. If you look through the data you will find that we do spend an awful lot on exploration. To give you some idea, that is larger than the entire research budget for the ARC, which is the science budget, so we are spending significant amounts but we are not replacing the oil that we have already found. Why? There are geological constraints on oil in Australia. It is not as though Australia is not a major minerals country with major iron ore deposits; the geology of Australia has been worked out thoroughly over the last 20, 30, 50 years. The areas that are prospective for oil are very well known. Basically this means that it is unlikely we are going to find large new oil deposits in Australia to offset the decline in the fields that we have got already. It is possible, but I do not know which basins they would be looking in; the most prospective ones were all found very early. I believe that Bass Strait was found within a couple of years of the first drilling programs going on in Australia because it was the obvious place to look.

What it means ultimately is that Australia is going to be completely subject to world global oil supplies, and so of course we want to look into that. You can get many different opinions and I am sure that all of you have looked through lots of submissions and various other things. I have got a report here, which I found on the web, which is a very good one. It goes through the giant oilfields in world—the Ghawars, the Burgans, the big fields. It goes through when they were discovered, how much oil is there and where they have discovered new oil recently. It is very obvious when you look through these that we are not finding anywhere near the amount of oil that was found in the early 60s. There was much more oil found then. This is despite the fact that now, since the 60s, technology has moved on a long way. You can do Google World if you want and you can look over the entire world, so it is not as though they do not know what the world has got now. You have to question why they are not finding giant oilfields. Of course, the conclusion you can come to is that they are getting harder to find because we have found most of the major ones.

The giant oilfields are the ones that are of crucial importance because they represent more than half the oil in the world. The ones in the Middle East, which represent most of the giant oilfields—in Saudi Arabia, Iran, Kuwait and that area—are the key. Over the last 10 years the biggest field they have found is in Kazakhstan, which is a good place and prospective, but it was less than one-tenth the size of the Ghawar field and that was found in 1948. So it is a very long time since they found fields as large as the ones they found in the Middle East from the 1940s to 1960s.

The concept of peak oil is not exactly new. I just got a Scientific American, published in 1970, I believe, and it has got one of the original articles by the Hubbert guy who did the Hubbert peak. In 1970 he was predicting that world oil would peak around 2000 or 2005—sometime around now—and it is surprising to find that a lot of people are starting to agree with that, especially the geologists who know about what the constraints are. So it is not a new concept; it has just been ignored in the economic analysis that people do. They say, ‘If the oil price goes up, you look for more, you find more and the price goes back down again.’ But there are geological constraints in the world. You can fly to Europe or you can fly around the world; you know the finite size of the earth.

The economic analyses run big risks, like that contained in the ABARE report of 2003 which did not appear to take into account geological and geopolitical factors in the oil price. They still appear to have missed these points, because they claim that the oil price today is about $25 a barrel, which is not true—it is nowhere near true. If you were basing a business on the price of oil and it went up three times when you were telling everyone that there was no chance it would go up, you would be out of the business. So we have to be very careful when we look at pure economic analysis of these sorts of situations.

The best report that I have found for what the consequences of peak oil would be is the Hirsch report—I am sure you have all got copy of it, or you should have a copy—written by the US government. If you read through that—I was one of their consultants—you will find that it is all about the consequences of peak oil. The report does not take in any argument about greenhouse gasses. It says: ‘We’re not going to even worry about whether we do greenhouse gas damage to the planet. We are just going to say what would happen if oil peaked, how quickly could we bring on line all of the replacements that we would need and how could we cut down our demand and increase our supply of oil, even if we use coal liquefaction or any other of those sorts of things.’ Its conclusions are basically that you need to start a concerted effort at least 15 years before oil peaks, otherwise you are going to have a deficit in the amount of oil. If we have a deficit, then demand and supply—the market forces—will work very well and the price will go up. It is crucial.

The factors that Dr Hirsch takes into account are things like how long—and I heard a presentation about this this morning—it takes to build a plant for gasification then coal to liquids. It turns out these plants take a long time to build and they cost billions of dollars in capital. When your economy has been ruined by an oil price rise, it is going to be very difficult to raise the capital to quickly build this sort of infrastructure. I believe that a new oil terminal to do the refining takes in the order of 10 years to build. It is a very complicated and very expensive process. So you have to prepare well in advance. Basically, in this report, under all the scenarios that he comes up with, massive mitigation schemes should be undertaken, starting right now. This is simply due to the scale of the problem: when it hits, it will be very big. How do we replace in Australia 700,000 litres of oil a year? It is a lot of oil.

That is a problem, I think, for the political system, which you are part of, because it is well and truly outside the electoral cycle. If you inflict pain on people today for a benefit in 15 years, it makes it very difficult for you to get re-elected, I imagine. So it is a problem with our political system that we do not have the ability to look at the 15-year horizon, and that is the sort of horizon that is needed to approach this major world problem.

As I mentioned, Hirsch report does not incorporate any greenhouse concerns at all. It does not take into account that if you are using coal to make liquid fuels you need to take four kilos of coal to make one litre of petro